Best International Stock: Syneron Medical

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Aging. It's an inevitable process, and it can be tough to take in a society where looks are everything. But innovative technology in the medical field has created methods to at least postpone the wrinkles and turkey neck you're destined to wear.

Needle, please
Years ago, those clinging to the fountain of youth faced long and painful surgeries. But these days, you can get a makeover procedure literally during your lunch break. Given the choice, those desperately fighting to erase the signs of aging now prefer the needle over the knife.

As with any new, high-growth market, a glut of competitors has clustered in the industry specializing in minimally invasive cosmetic surgery. The competition among Syneron Medical (Nasdaq: ELOS), Palomar Medical (Nasdaq: PMTI), and Cutera (Nasdaq: CUTR) has been heating up. They're all fighting for the attention of the 77 million baby boomers who make up a gigantic percentage of their target audience.

Glamour power
But it's not just the stereotypical market of older-generation women who are seeking ways to eliminate unwanted wrinkles and veins. Because maintaining a beautiful and youthful look has become associated with success and power, younger professionals are taking advantage of procedures such as cellulite reduction and acne treatment. And according to the American Society for Aesthetic Plastic Surgery, male non-surgical cosmetic procedures increased 722% from 1997 to 2006.

In 2006, there were 9.1 million minimally invasive cosmetic procedures performed, up 66% from 2000. Yet, as enormous as the market is, there isn't room for all of these players. Ultimately, only the top of the heap will survive. I think that with its revolutionary technology platform, Syneron has huge potential and has positioned itself to evolve into an industry leader.

The Syneron story
Syneron, based in Israel, has developed a process that simultaneously harnesses the power of bipolar radio frequency and optical energy to provide safe, effective, and affordable aesthetic medical treatments. Founded in 2000, the company has already captured a 20% market share. Market penetration is expected to grow, now that the company is moving into the home-use device market through its agreement with Procter & Gamble (NYSE: PG).

The company sells its products to physicians and other practitioners. And although prices range from $170,000 to $250,000 per unit, the products end up creating a winning situation for everyone involved. Patients save on costs, since minimally invasive procedures are typically far less expensive than traditional plastic surgery. And because insurance doesn't cover cosmetic surgery, it's a cash-rich business for doctors, who can charge premium prices without worrying about how much an insurance company allows.

Balance sheet sans the cellulite
With virtually no debt on the balance sheet and five-year average operating and net margins more than double the industry average, Syneron sports financials that are just as superior as the products they make. Yet that stellar performance still commands a forward price-to-earnings ratio of just 9.6.

Both Syneron and its competitors have experienced depressed stock prices over the past year, as investors have come to realize that it isn't possible for all of these rivals to coexist. Just as in any intensely competitive market, margins will feel a squeeze, and persistent heavy investment in marketing and in research and development will pressure short-term cash flow and earnings. That said, I trust that Syneron will continue to build on its impressive R&D track record, because doing so will allow it to remain a major player within the industry, even as things shake out.

After its shares suffered in the fall, Syneron has already recovered 14% of its value since the beginning of this year. I think this is just the beginning of a strong year for the company. The CAPS community appears to agree; its players have given the stock five out of five stars. What do you think? Head on over to Motley Fool CAPS and rate the stock an "outperform." We'll tally the votes and then let you know whether Syneron is an international investment that belongs in your portfolio.